The Retirement-Savings Vs. College-Savings Dilemma
Before a child is born, every parent considers (even if briefly)
the cost of raising a child and to put them through college. And
the question about saving money that you'll consider at some
point is: how do I evaluate whether I should be saving for my
own retirement or saving for the kids' college?
The obvious answer is to save for both. But few young parents
have the earning power and lifestyle discipline to have extra
money left over at the end of the month. It simply isn't
practical for most families or young parents to do so.
When it comes to paying for college, there are many resources to
tap. The most common sources are student loans, grants,
scholarships, tax credits, work-study, employer assistance, or
financial aid from states/federal agencies/community
organizations. If that isn't enough, the student could choose a
school with cheaper tuition, work part-time, or work full-time
and postpone entering school to save up more money.
There is always a way to fund a college education or trade
school training (even an expensive one). But there is no way to
finance a retirement. None. (You can apply for a reverse
mortgage to spend the equity that you've built up in your home,
but that is not a sustainable solution for most retirees). What
do you think is going to happen when the baby-boomers start
receiving social security checks in 2014. Do you think it will
be more likely that social security benefits will go up or go
down? Are the social security taxes that people pay more likely
to go up or go down? The underlying answer is that you need to
personally save money for your own retirement; nobody is going
to automatically write you a big check to spend however you want
just because you don't want to work anymore.
I've explained some of the details but the concise answer to the
title question to this article is: always save for your
retirement first, because no one is going to do for it for you.
Save for college later when you are earning more money, and
already have a great start on your retirement accounts. There
are many ways to pay for a college education, and it seems there
are more every few years. But as no one knows the future, your
kids may not even have an interest or need for college based on
their particular situation. In the meantime, over those same 18
years, you could have set aside a lot of money for your
retirement.